Hold your breath: 2013 looms

Monday

Jul 23, 2012 at 12:03 PMJul 23, 2012 at 12:04 PM

The Oklahoman

If you think our country's hurting now, wait another five months. As became clearer last week, the combination of tax increases and massive, automatic budget cuts scheduled to hit in 2013 will deliver the sort of blow to our economy that could take years to overcome.

Ben Bernanke, chairman of the Federal Reserve, gave a bleak overview to the Senate Banking Committee last Tuesday — our economy is growing, but only modestly, and has waned in the past few months. Job growth and manufacturing have slipped, consumer spending is down.

And if Congress doesn't reach an agreement to stave off a budget crisis, Bernanke said, "It would probably knock the recovery back into a recession and cost a lot of jobs, and would greatly delay the recovery that we're hoping to facilitate."

A lot of jobs? A report by the Aerospace Industries Association estimates that the $1.2 trillion cuts in defense and domestic programs — slated to kick in at the start of next year — will put about 2 million people out of work. That would bump the unemployment rate by 1.5 percent, and result in billions of dollars' worth of losses to the economy.

These cuts are looming because last year, Congress and the president agreed to slash spending by $2 trillion over 10 years as part of a deal to raise the nation's borrowing limit. Roughly half of the cuts went into effect immediately. An additional $1.2 trillion in cuts is scheduled to go into effect in January — with $500 billion of those hitting the Department of Defense, after a congressional supercommittee failed to agree on how to spread the cuts among many agencies.

Adding to this pending train wreck is the likelihood that a package of Bush-era tax cuts will be allowed to expire. Republicans wish to extend the current rates for all taxpayers for another year, while Democrats want to see them expire for those who make more than $250,000 annually. That's in line with President Barack Obama's push to have the wealthy pay their "fair share."

The party of the working man, though, seems more than willing to increase taxes on its base. Sen. Patty Murray of Washington state, who heads her party's Senate campaign committee, told an audience in the nation's capital last week that if Republicans don't agree to increase taxes on the wealthy before November, Democrats will be happy to let all the Bush-era tax rates go by the boards. They apparently view that strategy as a political winner.

Given that the solutions to all this lie with Congress, we ought to brace for the worst.